A stock-redemption plan is a type of buy-sell agreement under which the company redeems the shares of a stockholder who is leaving the company due to retirement, disability, or death. Life insurance is the most common way to fund a stock redemption plan.
Stock redemption plans have advantages (easy to implement, cost effective, cash value of life insurance policies can be considered a company asset, etc.) and disadvantages (policy premiums are not tax deductible, life insurance policy cash values may be subject to creditors). They also can raise certain tax issues. It's important to discuss whether a stock redemption plan is the right type of buy-sell agreement for your business with a tax professional and a business lawyer.
First Commonwealth Bank and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.